Oil prices edges higher on Tuesday as upbeat economic data in No. 2 oil consumer China more than offset wider concerns that possible increases to U.S. interest rates could dampen growth in the top consuming country. Brent crude rose 49 cents, or 0.6%, to $85.25 a barrel while U.S. West Texas Intermediate was up 49 cents, or 0.6% at $81.32. China’s economy grew by a faster than expected 4.5% in the first quarter while oil refinery throughput rose to record levels in March, data showed.
“The big picture with China’s growth still suggests a market that is under supplied,” said Phil Flynn, an analyst at Price Futures Group. But the prospect of another U.S. interest rate hike continued to support the dollar and remained a drag on sentiment. Traders expect the U.S. Federal Reserve to raise rates by 25 basis points at its May meeting. The U.S. central bank most likely has one more interest rate rise in store to fight inflation, Atlanta Fed President Raphael Bostic said. The next step may depend on global growth and whether the economy can weather the recent storm, particularly in the U.S., where tighter credit could significantly weigh on growth for the rest of the year,” said Craig Erlam of brokerage OANDA, referring to the oil price outlook.
Crude was also pressured by the Iraq federal government and Kurdistan Regional Government (KRG) taking a step towards a resumption in northern oil exports from the Turkish port of Ceyhan after they were halted last month. The dollar eased on Tuesday after earlier gains. A stronger dollar makes commodities priced in the U.S. currency more expensive for buyers holding other currencies. Most traders believe that the recent crude price rally is in need of a correction, said Dennis Kissler, senior vice president of trading at BOK Financial. Crude posted gains for 4 straight weeks at the end of last week, a streak not seen since June 2022. Coming into focus on Tuesday will be the latest snapshot of U.S. inventories. Analysts expect U.S. crude inventories to fall by about 2.5 million barrels and also forecast declines in gasoline and distillates.